Intro to Econ: Tenth Lecture Aside – Equal Opportunities

In this post I want to use the model and insight of the previous post to talk about equal opportunities. With this I mean the idea that everyone has the same access to education. I will argue that it is not for fairness but for efficiency reasons why a social planner might prefer a world with equal opportunities. I should also add that this post is a bit fanciful and one could possibly disagree with the way the argument goes. Take it with a grain of salt.

Recall the example from the previous post. We had a small world consisting of three jobs and three people. The people were called Yvonne, Jacqueline, and Babette, and the jobs that they could have (we need one person doing each job) were manager, electro technician, and recycling expert. The following table states the potential added value (recall post on GDP) in thousands of euros per year that each person could create by working in one of the possible jobs.

 \begin{tabular}{c|ccc} & manager & technician & recycling expert \\ \hline Yvonne & 120 & 160 & 40 \\ Jacqueline & 200 & 220 & 140 \\ Babette & 100 & 100 & 180 \\ \end{tabular}

 

Recall that this little job market had only one possible stable allocation (or matching) of people to jobs, the unique total added value maximizing one, in which Yvonne is technician, Jacqueline is manager, and Babette recycling expert. The total added value in this case is 160+200+180=540 thousand of euros per year. We also noted that this model does not allow us to make strong conclusions about the salaries in this job market. There is a range of possible (unequal) splits of value added between employees and employers. It was clear, however, that Jacqueline, by virtue of her high levels of added value, would have to make considerably more than Yvonne in this highly stylized job market. In fact, I believe it was 60 thousand euros a year more. But otherwise salaries can be higher or lower on the whole. It is just as stable to pay Yvonne and Babette 50 thousand a year and Jacqueline 110 thousand a year as it is to pay everyone 30 thousand a year more. This is so in this model and I am not completely sure whether this would hold up in better models that we would build if our primary interest was salaries. But as it is, this model leaves room for unionized bargaining, which does happen in many countries in the world (Austria, for instance). So perhaps this feature is not completely silly either. With unionized bargaining I mean that the employees all get together and negotiate a sort of base wage together as one negotiator against the also possibly unionized collective of employers as one other negotiator.

But I wanted to address a different problem in this post. What do we expect to happen if we do and if we don’t have equal opportunities? One could argue that education is a way for people’s potential added value numbers to be generated. A person without an education could do very few jobs, that’s the idea at least. To be an engineer, for instance, you probably need to study engineering at least. Let us suppose for the moment that Yvonne simply has no access to education. And without education the added value she can provide is very limited in all three positions. In fact assume it is limited to 20 thousand a year in each job. The new situation can then be depicted in the following table.

 \begin{tabular}{c|ccc} & manager & technician & recycling expert \\ \hline Yvonne & 20 & 20 & 20 \\ Jacqueline & 200 & 220 & 140 \\ Babette & 100 & 100 & 180 \\ \end{tabular}

 

Given the insight from the previous post we know that the only stable allocation or matching is the total added value maximizing one. Here this means that Yvonne will be manager (a very bad one and also badly paid), Jacqueline technician, and Yvonne recycling expert. The total added value is 20+220+180=420 thousand a year. By assumption this is less than in the case when Yvonne is educated. But more interestingly, now Jacqueline has less competition (when educated Yvonne is also not such a bad manager) and now Jacqueline needs to be paid at least 180 thousand a year. Also Babette now needs to be paid at least 80 thousand a year. This means that if you ask Jacqueline and Babette in this small world if they would like Yvonne to be educated they might well say no. Because then Yvonne could compete with them for these jobs which might mean that they might be paid less.

As I said before, this post should be taken with a grain of salt. The model completely ignores the realistic possibility that an educated (and this could also mean well-trained, it does not have to mean “high-brow” education) person could create altogether new job possibilities, from which (almost) everyone in the economy could benefit. As an example consider someone who is educated in specific ways that enables him or her to start something like Microsoft or Google. Such a person then becomes a new employer and, in our model here, would create a fourth column in the matrix and thus new scope for added value.

But I could imagine that in some societies the elites, being the only ones with access to education, worry that if everyone gets an education, then their possibly not so clever offspring will have a hard time getting well-paid jobs. It is otherwise difficult to see how one could be against equal opportunities, not for fairness but for efficiency reasons. But the model is probably really too simple to provide the definite answer to this question.

 

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